In international trade, when quoting export commodities, in addition to product costs and profits, manufacturers also need to account for freight, insurance, and tariffs incurred during the handover of goods. Among the different price terms, its cost division is different. So let's take a look at different price terms, what constitutes its price?
Price and cost composition
First, let me explain. Under the FOB trade method, the risk responsibility is transferred from the seller to the seller after the goods are loaded at the port of departure and over the ship's side, and the division of costs is also consistent. Under the C & F and CIF trade methods, after the goods arrive at the destination, the unloaded goods cross the ship ’s rail, and the seller ’s risk responsibility is over. In other words, under the terms of C & F and CIF, the seller only pays the freight and insurance premiums on behalf of the buyer. After that, as long as the goods are on board, the seller's responsibility has actually been completed. As for whether the ship can arrive at the port on time and whether the midway cargo will be damaged or not, the seller shall not bear the risk. It can be seen that in fact, their cost allocation is the same as FOB, except that additional costs such as shipping and insurance are added.
Let's look at the composition of prices. In fact, FOB price can be regarded as a basis, and C & F price is based on FOB price plus freight; CIF price is based on this plus freight and insurance. In other words, as long as we know the FOB price of the product, the other two price terms can be easily calculated.
In fact, FOB price is composed of cost, expense and expected profit. Among them, the cost and the expected profit are relatively good accounting, and the cost accounting will be a little more complicated. Next, let's take a look at how the cost under FOB price is calculated?
Product cost accounting
In general, the cost of a product (finished product) produced by the manufacturer includes the raw materials of the product, the rent of the plant, depreciation of equipment, labor costs, and management costs. Among these factors, the cost of raw materials accounts for a large proportion. For example, like making metal equipment products, the seller's products will be affected by changes in international metal prices. If the metal price falls, the seller ’s product export price will definitely change, and the customer will generally not place an order at this time. On the contrary, if the price is skyrocketing, what price should we quote for customers to inquire?
We all know that when talking about orders in general, the quotation is valid for 7-10 days. At this time, based on the price given by the factory, and then referring to the increase in domestic and foreign raw materials, the price within an increase range is estimated. When sending emails to customers, add some screenshots of the price increase in the content to explain the current price increase of raw materials in the market. In fact, many customers are aware of market conditions and can accept price increases. However, some suppliers may not dare to quote because the price has been fluctuating all the time, fearing that they will not be able to take orders if they are quoted high; if they are quoted low, there will be problems with order execution.
At this time, some unreasonable suppliers will not execute the order after confirming and placing the order with the buyer, and find a reason to request a price increase. This behavior is actually disguised in disguise: the buyer's judgment of choosing you as a supplier. On the one hand, buyers will still be more inclined to trustworthy suppliers; on the other hand, if the price of materials rises sharply, if you can maintain a stable price, although your price is higher, in fact, many professional buyers can accept your price adjustment.
Finally, to sum up, the so-called product cost, for the salesman of the foreign trade company, is actually the billing price given by the factory, that is, the price of the product purchased by the foreign trade company and the factory. For the factory salesperson, the general boss will not directly tell you the product cost, but will give a basic price or factory price of the product.